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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 51

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On January 1, the Elias Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for $46,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, ten years from now. Elias records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 of the first year is

A) $5,000
B) $5,200
C) $5,800
D) $5,400

E) A) and B)
F) C) and D)

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Question 52

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If $1,000,000 of 8% bonds are issued at 102 3/4, the amount of cash received from the sale is

A) $1,080,000
B) $972,500
C) $1,000,000
D) $1,027,500

E) B) and C)
F) All of the above

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Question 53

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Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

One potential advantage of financing corporations through the use of bonds rather than common stock is

There is a loss on redemption of bonds when bonds are redeemed above carrying value.

On January 1 of the current year, the Barton Corporation issued 10% bonds with a face value of $200,000. The bonds are sold for $191,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, five years from now. Barton records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 is

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do not materially differ from the results obtained by use of the interest method.

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.

Gains and losses on the redemption of bonds are reported as other income or other expense on the income statement.

The journal entry a company records for the payment of interest, interest expense, and amortization of bond discount is

The interest expense recorded on an interest payment date is increased

Using the following table, what is the present value of $15,000 to be received in 10 years, if the market rate is 5% compounded annually?

Franklin Corporation issues $50,000, 10%, 5-year bonds on January 1, for $52,100. Interest is paid semiannually on January 1 and July 1. If Franklin uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.

Balance sheet and income statement data indicate the following: Bonds payable, 6% this is year 4 of 20 years) Preferred 8% stock, $100 par no change during the year) $1,200,000 200,000 Common stock, $50 par No change during the year) 1,000,000 Income before income tax for year 340,000 Income tax for year 80,000 Common dividends paid 60,000 Preferred dividends paid 16,000 Based on the data presented above, what is the number of times bond interest charges were earned round to two decimal places) ?

The face value of a term bond is payable at a single specific date in the future.

Bondholders are creditors of the issuing corporation.

Match each description below to the appropriate term a-g) . -The contract between bond issuer and bond purchaser

Ulmer Company is considering the following alternative financing plans: Income tax is estimated at 35% of income. Dividends of $1 per share were declared and paid on the preferred stock. Required: Determine the earnings per share of common stock, assuming income before bond interest and income tax is $600,000.

The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount.